The Opportunity Cost of Capital of US Buyouts

Working Paper No. 14148 This paper measures the risk-adjusted performance of US buyouts. It draws on a unique and proprietary set of data on 133 US buyouts between 1984 and 2004. For each of them we determine a public market equivalent that matches it with respect to its timing and its systematic ri...

Full description

Saved in:
Bibliographic Details
Published in:NBER Working Paper Series 2008-06, p.14148
Main Authors: Groh, Alexander Peter, Gottschalg, Oliver
Format: Article
Language:English
Subjects:
Borrowing
Economic impact
Economic theory
Equity
Investors
Limited partnerships
Liquidity
Opportunity costs
Portfolio management
Private equity
Rates of return
School finance
Venture capital
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Working Paper No. 14148 This paper measures the risk-adjusted performance of US buyouts. It draws on a unique and proprietary set of data on 133 US buyouts between 1984 and 2004. For each of them we determine a public market equivalent that matches it with respect to its timing and its systematic risk. After a correction for selection bias in our data, the regression of the buyout internal rates of return on the internal rates of return of the mimicking portfolio yields a positive and statistically significant alpha. Our sensitivity analyses highlight the necessity of a comprehensive risk-adjustment that considers both operating risk and leverage risk for an accurate assessment of buyout performance. This finding is particularly important as existing literature on that topic tends to rely on performance measures without a proper risk-adjustment.
ISSN:0898-2937
DOI:10.3386/w14148